Renting vs Buying a Home
Written by Michael Nykiel – Loan Officer, Evergreen
Buying a home is a major life decision, but when is the time right? Would you be better off renting vs. buying? These are great questions to ask yourself and good news is there is no single correct answer. There are pros and cons to both renting and buying.
Your decision can come down to several lifestyle considerations, such as whether you want flexibility or stability? What are your career goals? Do you want a place to truly call your own?
If you are on the fence about whether you should rent or buy, the following questions may help to provide clarity.
How Long do You Plan to Live in That Area?
Are you planning on settling in the area you are looking in or do you need to have flexibility?
If you feel you’ll stay in a home for at least 5 years, buying could make sense for you. On the other hand, renting may be the better option if you prefer to be more nomadic. Let’s say you’re really hoping to get that job promotion – but it’s halfway across the country. You don’t want to have to deal with the hassle of selling a home all while transitioning to a new position!
Estimate The Cost of Renting vs. Buying
In some instances, renting can be cheaper than buying a home— this is because of the upfront costs involved with a mortgage. With that being said, costs you should consider when purchasing a home include your down payment, closing costs, moving costs, renovations, and other home maintenance tasks.
Unfortunately, just because you can afford a mortgage payment doesn’t mean you can afford the home. In addition to a monthly principal and interest payment, you’ll also have to pay property taxes, homeowner’s insurance, private mortgage insurance and depending on your home location there is the potential for HOA fees. These are all costs that can be avoided should you choose to rent!
On the other hand, buying a home is almost always cheaper in the long run and it offers you an opportunity to build equity. Should you choose to sell your home, the end goal would be to have increased its value— something that you cannot benefit from when renting!
Risks to Consider When Renting vs. Buying
There are risks for both renting and buying a home. Although you can build equity when buying a home, there are some financial risks involved. Should you sell your home sooner than planned, you may not be able to make up for what you spent in closing costs, remodeling, and repairs.
Additionally, do not forget about typical maintenance costs—these are expenses you’ll need to pay to keep the home in excellent condition. Tasks, such as, checking air filters, landscaping, plumbing issues, and other unexpected repairs can add up fast!
Renting means you will not have to worry about the additional costs as they are typically taken care of by the property manager or landlord. However, you also never have the opportunity to build equity wealth in the property. In addition, your monthly rent could go up at any given time and are also at the mercy of your landlord, such as being asked to move out.
Assess Your Financial Situation
It’s important to note that you need to be realistic about your financial situation when deciding between renting and buying. Once you estimate the costs of renting vs. buying, be honest about whether you can afford other upfront costs like a down payment, repairs, moving costs and buying new furniture. Consider talking to a mortgage professional to help estimate dollars to close, potential monthly mortgage payment and go over unforeseen expenses. This will help determine how much home you can afford.
In the end, do some careful budgeting so no matter what you choose, you’ll be able to financially afford to buy or rent!